Forging Firms in Focus Again as US Demand for Heavy Trucks Picks Up
ET Intelligence Group: Exportoriented forging companies such as Bharat Forge, Ramkrishna Forgings and MM Forgings are back on investors’ radar, thanks to signs of recovery in the heavy truck market in North America. Exports to North America constitute nearly 25-40% of the total sales of these companies.
Reflecting the mood, stocks of forging companies have surged 8-15% in the past one month as orders for heavytruckstotheUShavepickedup.
The order inflows of Class 8 order — an indicator of heavy truck sales to North America — gained 20% YoY to 21,600 units in January. This is the second time in the past two years that order inflows of such trucks have posted a growth.
According to Freight Transportation Research, US fleet operators are more confident about the market conditions now than they were four months back and fleet rates have started improving since December. Also, Paccar, a US commercial vehicle maker, has indicated that dealers are turning positive and expecting a better 2017. Bharat Forge is expected to gain the most among the forging companies due to the sheer size of its operations. It is expected to post 5% and 15% growthinFY18andFY19,respectively. The management of Ramkrishna Forgings appears to be the first to sense an improvement. In the September quarter earnings concall, its management said that they expect export volumes to recover. Chennai-based MM Forgings got nearly 25% of the total revenue from the US in the last fiscal. It is ramping up its capacity to 65,000 metric tonnes by the end of this fiscal compared with 53,000 MT, currently.
Imposition of border tax in the US could be a near-term risk. However, due to the nature of the US forging industry, full substitution may not be possible. Hence, some impact could be shared by the vehicle makers. Bharat Forge may be the least impacted as it recently acquired Walker Forge and this facility may be used for local production.
Bharat Forge is expected to gain the most due to the sheer size of its operations
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